China’s panic-buying of salt

Commentary: A sign economy is at breaking point?

HONG KONG (MarketWatch) — This week attention will remain on the spillover effects of Japan’s nuclear crisis as a large degree of edginess remains.

Somewhat surprisingly it has been cities across China, including Hong Kong, that have witnessed panic in recent days, in contrast to the relative calm in Japan.

Last week, a salt-buying frenzy was unleashed across China that spread to Hong Kong, which quickly became a rather unsavory spectacle. Rumors had spread via the Internet from across the border that some salt contains iodine, which would provide protection from a looming radiation threat from Japan. Throngs of people began scrambling for salt, mobbing shops and wholesalers.

Japan restores some reactors

(2:24)

Japan gets some operations back on track at the Fukushima Daiichi nuclear power plant, but reactor No. 3 continues to pose challenges.

On Friday, the Hong Kong government had to resort to a mass text-message campaign imploring people not to believe rumors and to stop panic-buying salt. The fact you might have to eat kilos of the stuff to get sufficient iodine was of no consequence. Indeed, so chaotic was the behavior that some people were even seen bizarrely carting off bottles of soy sauce. Amid the buying, retailers reportedly raised the price of salt more than tenfold, seeing an opportunity to profit from this panic.

The whole episode has caused a certain degree of embarrassment and shame, particularly in contrast to the restrained behavior in Japan, where there is very real suffering. There the orderly and stoic lining up for water, transport and food in the middle of biblical-like devastation has shown the remarkable endurance and self-control of the Japanese people.

This makes the contrast with images on mainland China all the more stark. Some academics have suggested the willingness to believe bogus warnings reflects a lack of trust in the government’s truthfulness in China. That could have some credence: Back in 2008, the government tried to keep the scandal of powdered milk mixed with melamine that was poisoning babies quiet until after the Olympic Games in Beijing. Perhaps one unintended consequence of a one-party government which controls the media with an army of censors is that it creates a fertile breeding ground for paranoia.

What is perhaps more surprising is that Hong Kong, which has a free flow of information and independent media, also joined the frenzy.

Another explanation for this out-of-control behavior is that those on the treadmill of the world’s workshop are at breaking point as they struggle with a surge in living costs. That would be one way to interpret reports that many Guangdong factory workers did not bother to return to work from their Chinese New Year trip home.

The whole episode sits awkwardly next to the central government’s newly introduced mantra of pursuing happiness, not just economic growth. The Economist featured a story on China this week “Don’t worry be happy,” reporting how various mainland provinces are now competing not on gross domestic product numbers, but to have the happiest citizens.

Incidentally, another case of failing the good-character test in the past week involved Singapore’s media giant Media Corp. Shortly after the Japanese earthquake struck, it pitched clients with a new ad package saying it expected a surge in viewers on its news channel with coverage of the disaster. Not surprisingly, this clumsy attempt to make some extra money from the earthquake caused outrage, and Media Corp. had to later apologize.

Getting back to Japan’s economy, China, as well as much of the region, will be watching carefully how quickly it recovers. If an economy the size of Japan’s — which until last year was the second-largest in the world — goes into reverse, it potentially sets up a negative growth shock for the region.

But many are optimistic that can be avoided. Even before the aftershocks had subsided, various economists were already penciling in a strong rebound as rebuilding efforts got underway. But that optimism might be misplaced, argue analysts at Nomura. They say in a new report that despite initial confidence that reconstruction expenditure would feed into the economy by the year’s end, this may be restrained by a lack of sustainable power.

Even harder to quantify is how the crisis impacts investor risk appetite by raising the level of uncertainty. For China, any shock from Japan’s crises comes at a time when it has already been applying the brakes to its economy and is also dealing with rising oil and commodity prices. Now we are starting to see some impact, as bank lending slow markedly last month to 536.6 billion yuan ($81.7 billion), significantly lower than 1.04 trillion yuan in January.

Mainland Chinese policy makers have a delicate balancing act to steer the economy to slower growth and wean it off bank credit without tipping an overheated property market into bursting or killing jobs growth.

What we saw last week was not anything truly worrying, like a run on banks, but just a run on salt. Still, the manic scramble suggests a deeper level of anxiety on the ground over the direction of the economy — something that should not be taken with a pinch of salt.

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